Gm545 Essay

2653 Words Feb 12th, 2012 11 Pages
Homework Practice Questions: Microeconomics/Macroeconomics The following questions are for homework practice only. They are to be answered in detail, so it can be used for practice and future reference. 1. Suppose you are hired to manage a small manufacturing facility that produces Widgets.

(a.) You know from data collected on the Widget Market that market demand and market supply have both increased recently. As manager of the facility, what decisions should you make regarding production levels and pricing for your Widget facility?

The increase in supply is likely the result of the increased demand, which created economic profit for firms because of higher prices. Depending on whether the increase in supply has expanded
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Remember that supply and demand are about the market supply and market demand, which is bigger than your own company. You are being given data on supply and demand for the whole market, and are being asked what effect that has on you as a small part of that market.

(b.) Now, suppose that following the supply and demand changes in (a), a substitute good goes up in price, and your costs of production increase. What new decisions will you make regarding production levels and pricing for your Widget facility?
If the price of a substitute good increases, then demand for your product should increase. The increase in the cost of production, however, will cause your revenue to fall if you keep your price the same. The increase in demand should enable you to increase prices, though, selling perhaps the same number as before but at a higher price. This will keep increase revenues so as to cover your increased costs.. Increase the production levels more than increasing the price as now you can generate incremental net profit at same pricing. If the price of a substitute good increases, the demand for your product should increase . The increase in the cost of production, however, will cause your revenue to fall if you keep your price the same. The increase in demand should enable you to increase price, selling perhaps the same number as before but at a higher price. This will keep revenue from falling.

2. Here is some data on the

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